‘Full speed ahead’ for Lundin’s Ecuador gold project after financing deal

A pot of gold at rainbow’s end. Lundin’s Fruta del Norte mine in Ecuador is expected to produce 310koz of gold per year over 15 years. Image: Lundin Gold

Shares in Lundin Gold (TSE:LUG) declined Tuesday after the company announced a $400–$450 million project financing package for its 100%-owned Fruta Del Norte project in Ecuador.

After a jump at the start of trading, in afternoon dealings on the TSX the Vancouver-based company was exchanging hands for $6.16 down 1%, amid a generally lacklustre day on the gold market. Lundin Gold is worth $736.7 million after a 17% year to date gain.

In a statement Lundin Gold said the project finance package agreed with private equity groups Orion Mine Finance and Blackstone Tactical Opportunities is a sign of “growing support for mining investment in Ecuador.”

According to Lundin Gold the financing is comprised of a gold prepay credit facility for $150 million, a stream loan credit facility of $150 million and committed participation of $100 to $150 million to future equity financings required to fund the project.

The streaming deal is repayable in variable monthly principal and interest instalments equivalent to the delivery of 7.75% of gold production and 100% of the silver production starting in December 2020, up to a maximum of 350,000 oz of gold and six million oz of silver according to the statement.

The deal also grants Orion and Blackstone the right to purchase 50% of Fruta Del Norte gold production, up to a maximum of 2.5 million ounces.

Lundin Gold President and CEO Ron Hochstein said the agreement “confirms the strength of this project and gives us the ability to move full speed ahead with construction.”

Lundin Gold also provided an update on Fruta del Norte on Tuesday containing a number of design changes  from the June 2016 Feasibility Study.

The update includes a revised mine plan which moves up expected first gold production to the final quarter of 2019 from Q1 2020 previously while commercial production has been advanced by six months.

According to the update capital expenditure required for an underground mine at Fruta del Norte is now estimated at $684 million from $669 million before.

The the high-grade property located in the southeast of Ecuador boasts Probable Mineral Reserves of 4.8 million ounces of gold and 6.34 million ounces of silver (15.5 million tonnes at 9.67 g/t Au and 12.7 g/t Ag).

Lundin Gold is now targeting average annual gold production at Fruta del Norte of 300,000 ounces over 15 years (the FS estimated 340,000 ounces over 13 years) at an average life of mine total cash cost of $561/oz and an estimated LOM all-in sustaining cash cost of $609 per ounce (down from $623/oz before).

Discovered in 2006, Lundin Gold acquired the project in 2015 from fellow Canadian miner Kinross Gold (TSX:K) (NYSE:KGC), which had suspended work on the venture after authorities refused to compromise on a windfall tax.

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